police followed [the cyclist's] ambulance to the hospital, asked him to write a written statement, and then handed him a warning as soon as he had finished the statement. The warning was for failing to “obey a highway sign.”

There is, of course, no highway sign there. The officer told him that the painted stop sign on the pavement was the "highway sign" in question. The MUTCD does not appear to cover how to treat the word "STOP" painted on the pavement.

By the way, pictured at bottom is the stop sign as of 9/2/11 (it may have still been there on Aug 10th)
The police officer also told him that he was considered a “cyclist” while on the trail, but became a “vehicle” when he entered the intersection, and thus did not have the right-of-way to oncoming traffic.
Which is wrong, because he's always a cyclist - even in the road - and he was actually on the trail, even though he was in the road. Do pedestrians crossing in an identical way become vehicles when they cross?

A similar incident occurred the end of August when a cyclist riding the W&OD trail was cited after being struck in a crosswalk by a motorist in Falls Church:

The identity of the cyclist who was struck at the intersection of Great Falls St. and the W&OD Bike Trail Thursday afternoon was released by the City of Falls Church yesterday.
He is David Fournelle of Reston, Virginia. He was treated and released last night at a local hospital. Falls Church Police cited him for Disregarding a Stop Sign.
The identity of the driver whose car was involved in the collision was not released.

We reported earlier that VDOT has recommended a review of VA Code as it relates to these situations.

A cursory review of the Code language in this study suggested that trail users on multiuse pathways may not be obligated to comply with non-signalized traffic control devices where the trail intersects a roadway. In addition, the research found there is confusion among motorists and trail users about right-of-way laws regarding the W&OD Trail where a STOP sign is directed toward the trail users. This confusion could compromise safety at these and other similar multiuse trail/roadway intersections.

It's time that this situation is clarified. Police seem to have an entirely wrong interpretation of the situation in which there is a non-VDOT stop sign at a crosswalk, and cyclists are paying a steep price.